System for financial planning

• US 7,577,597 B1
• Filed: 09/09/1999
• Issued: 08/18/2009
• Est. Priority Date: 09/09/1999
• Status: Expired due to Term

• Current Assignee: T ROWE Price Associates Incorporated (T. Rowe Price Group)
• Original Assignee: T ROWE Price Associates Incorporated (T. Rowe Price Group)
• Inventors: Allison, Suzanne S., Liebes, Phillip, Healy, Joseph P., Surguine, James M.
• Primary Examiner(s): Felten; Daniel S.
• Application Number:
  US09/393,024
• Time in Patent Office: 3,631 Days
• Field of Search: 705/35, 705/36, 705 40- 42, 235/379, 235/380
• US Class Current: 705/35
• CPC Class Codes: G06Q 20/102 Bill distribution or payments
• CPC Class Codes: G06Q 20/105 involving programming of a portable memory device, e.g. IC cards, "electronic purses"
• CPC Class Codes: G06Q 20/108 Remote banking, e.g. home banking
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03

Abstract

A system for financial planning is disclosed. The system determines at least one financial strategy for assets to meet financial goals. The system determines an outcome for each of a plurality of financial strategies and selects at least one of the financial strategies to meet the financial goals using a software-implemented decision analysis and the outcomes for the financial strategies.

Claims

1. A computer-implemented method for selecting at least one financial strategy from a plurality of financial strategies to achieve at least one financial goal, each financial strategy comprising an asset allocation, comprising the steps of:

receiving at a computer investor financial preferences regarding a plurality of attributes for at least one financial goal;

performing within the computer a plurality of Monte Carlo simulations on the asset allocation of each financial strategy based on a probability distribution;

generating rates of return within the computer for each respective financial strategy based on the Monte Carlo simulations;

calculating financial projections for each financial strategy based on the rates of return for each respective financial strategy;

calculating a plurality of attribute measures for each financial strategy based on the financial projections for each respective financial strategy, the plurality of attribute measures corresponding to the plurality of attributes for the at least one financial goal;

calculating a utility score for each financial strategy based on the plurality of the attribute measures for each respective financial strategy and the investor financial preferences regarding the plurality of attributes for the at least one financial goal; and

selecting at least one of the financial strategies from the plurality of financial strategies by the computer based on the utility scores for the plurality of financial strategies.

2. A computer-implemented method according to claim 1, further comprising:

storing the rates of return in a time series database of rates of return for each of the financial strategies.

3. A computer-implemented method according to claim 1, wherein the step of calculating a utility score comprises using a software-implemented decision analysis based on multi-attribute utility theory.

4. A computer-implemented method according to claim 1, wherein selecting at least one of the financial strategies comprises the step of selecting the financial strategy having a highest utility score.

5. A computer-implemented method according to claim 3, further comprising:

calculating a goals hierarchy for the at least one financial goal;

calculating a single utility function for each attribute of the at least one financial goal;

calculating a weight for each attribute; and

calculating a weight for each of the at least one financial goal;

wherein the utility score for each financial strategy is calculated based on the single-utility functions, the weights for the attributes, and the weights for the financial goals.

6. A computer-implemented method according to claim 5, wherein the at least one financial goal, the attributes, the single utility functions, and the weights for the attributes are calculated using input provided by a financial planner.

7. A computer-implemented method according to claim 5, wherein the weight for the at least one financial goal is calculated using the investor financial preferences, input provided by a financial planner, or a combination of financial preferences provided by an investor and input provided by a financial planner.

8. A computer-implemented method according to claim 1, wherein receiving investor financial preferences comprises the step of receiving financial preferences provided by an investor.

9. A computer-implemented method according to claim 1, wherein receiving investor financial preferences comprises the step of receiving input provided by a financial planner.

10. A computer-implemented method according to claim 1, wherein receiving investor financial preferences comprises the step of receiving a combination of financial preferences provided by an investor and input provided by a financial planner.

11. A computer-implemented method according to claim 1, wherein selecting at least one of the financial strategies comprises the step of selecting a financial strategy using a heuristic based on investor financial preferences.

12. A computer-implemented method according to claim 1, wherein selecting at least one of the financial strategies comprises the step of selecting a financial strategy using a heuristic based on financial variables related to the financial strategies.

13. A computer-implemented method according to claim 1, wherein selecting at least one of the financial strategies comprises the step of selecting a financial strategy using a heuristic based on investor financial preferences, financial variables related to the financial strategies, and utility scores determined for the financial strategies.

14. A computer-implemented method according to claim 1, wherein each financial strategy is selected from a multi-dimensional matrix of at least one financial variable and stored on a computer-readable medium, the multi-dimensional matrix having a plurality of cells, each cell in the multi-dimensional matrix corresponding to one of the financial strategies.

15. A computer-implemented method according to claim 1, wherein each financial strategy further comprises a product mix and a likelihood of success for achieving at least one of an investment of assets, an accumulation of assets, or a withdrawal of assets.

16. A computer-implemented method according to claim 1, wherein the asset allocation comprises an allocation of at least one of stocks, bonds, or short-term securities.

17. A computer-implemented method according to claim 15, wherein the product mix comprises a mix of at least one of a mutual fund or a variable annuity.

18. A computer-implemented method according to claim 1, wherein at least one financial strategy includes at least one of the following:

periodic withdrawal;

inflation adjustment;

minimal required distributions;

an ordered withdrawal strategy based on tax characteristics of the assets;

an ordered annuity purchase strategy based on tax characteristics of the assets;

periodic tax adjustment;

periodic shifting of asset allocations;

periodic rebalancing of assets to align with a current asset allocation;

re-investment of excess annuity payments;

reinvestment of excess minimal required distributions;

investor contributions;

asset management fees;

staggered investor account starts;

or MRD mortality rules.

19. A computer-implemented method according to claim 1, wherein the at least one financial goal is related to retirement financial goals.

20. A computer-implemented method according to claim 1, further comprising the step of providing a questionnaire for an investor, the questionnaire for receiving investor financial preferences.

21. A computer-implemented method according to claim 1, further comprising the step of creating a report describing the step of selecting at least one of the financial strategies and the selected at least one of the financial strategies.

26. A computer-implemented method according to claim 1, wherein the at least one financial goal includes college tuition financial goals.

29. A computer-implemented method according to claim 1, wherein generating rates of return for each respective financial strategy comprises:

constructing a covariance matrix for the asset allocation of each respective financial strategy based on each of a plurality of sub-asset classes of the asset allocation of each financial strategy;

calculating deviations for a zero rate of return obtained from the plurality of Monte Carlo simulations; and

combining the covariance matrix for the asset allocation, deviations for a zero rate of return obtained from the plurality of Monte Carlo simulations, and an average rate of return for each sub-asset class to obtain the rates of return for each respective financial strategy.

30. A computer-implemented method according to claim 1, wherein performing a plurality of Monte Carlo simulations comprises:

for each of a plurality of sub-asset classes of the asset allocation of each financial strategy, calculating a probability distribution for the sub-asset class based on at least one of historical data of the sub-asset class or input provided by a financial planner.

31. A computer-implemented method according to claim 1, wherein the probability distribution is a Gaussian probability distribution.

32. A computer-implemented method according to claim 1, wherein selecting at least one of the financial strategies comprises the step of selecting a financial strategy which does not have a highest utility score.

22. A computer-readable medium having computer-executable instructions that when executed by a computer, selects at least one financial strategy from a plurality of financial strategies to achieve at least one financial goal, each financial strategy comprising an asset allocation, the computer-readable medium comprising:

instructions that when executed by the computer, receives investor financial preferences regarding a plurality of attributes for at least one financial goal;

instructions that when executed by the computer, performs a plurality of Monte Carlo simulations on the asset allocation of each financial strategy based on a probability distribution;

instructions that when executed by the computer, generates rates of return for each respective financial strategy based on the Monte Carlo simulations;

instructions that when executed by the computer, calculates financial projections for each financial strategy based on the rates of return for each respective financial strategy;

instructions that when executed by the computer, calculates a plurality of attribute measures for each financial strategy based on the financial projections for each respective financial strategy, the plurality of attribute measures corresponding to the plurality of attributes for the at least one financial goal;

instructions that when executed by the computer, calculates a utility score for each financial strategy based on the plurality of the attribute measures for each respective financial strategy and the investor financial preferences regarding the plurality of attributes for the at least one financial goal; and

instructions that when executed by the computer, selects at least one of the financial strategies from the plurality of financial strategies based on the utility scores for the plurality of financial strategies.

23. A computer system for selecting at least one financial strategy from a plurality of financial strategies to achieve at least one financial goal, each financial strategy comprising an asset allocation, the computer system comprising:

means for receiving investor financial preferences regarding a plurality of attributes for at least one financial goal;

means for performing a plurality of Monte Carlo simulations on the asset allocation of each financial strategy based on a probability distribution;

means for generating rates of return for each respective financial strategy based on the Monte Carlo simulations;

means for calculating financial projections for each financial strategy based on the rates of return for each respective financial strategy;

means for calculating a plurality of attribute measures for each financial strategy based on the financial projections for each respective financial strategy, the plurality of attribute measures Corresponding to the plurality of attributes for the at least one financial goal;

means for calculating a utility score for each financial strategy based on the plurality of the attribute measures for each respective financial strategy and the investor financial preferences regarding the plurality of attributes for the at least one financial goal; and

means for selecting at least one of the financial strategies from the plurality of financial strategies based on the utility scores for the plurality of financial strategies.

27. A computer system according to claim 23, wherein the at least one financial goal is related to retirement financial goals.

24. A computer system for selecting at least one financial strategy for assets to meet financial goals, the computer system comprising:

means for storing investor information regarding a plurality of attributes for at least one financial goal;

means for storing a plurality of financial strategies, each financial strategy including an asset allocation;

means for performing a plurality of Monte Carlo simulations on the asset allocation of each financial strategy based on a probability distribution;

means for generating rates of return for each respective financial strategy based on the Monte Carlo simulations;

a software-implemented projection engine that calculates financial projections for each of the financial strategies using the rates of return;

means for calculating a plurality of attribute measures for each financial strategy based on the financial projections for each respective financial strategy, the plurality of attribute measures corresponding to the plurality of attributes for the at least one financial goal;

a software-implemented preference model incorporating the investor information;

means for calculating a utility score for each of the financial strategies using the preference model and the plurality of attributes measures for each respective financial strategy; and

means for selecting at least one of financial strategies based on the utility scores for the financial strategies.

25. A computer-readable medium having computer-executable instructions that when executed by a computer, selects at least one financial strategy for assets to meet financial goals, the at least one financial strategy including an asset allocation, the computer-readable medium comprising:

instructions that when executed by the computer, receives investor financial preferences regarding a plurality of attributes

for at least one financial goal;

instructions that when executed by the computer, performs a plurality of Monte Carlo simulations on the asset allocation of each financial strategy based on a probability distribution;

instructions that when executed by the computer, generates rates of return for each respective financial strategy based on the Monte Carlo simulations;

instructions that when executed by the computer, calculates financial projections for each financial strategy based on the rates of return for each respective financial strategy;

instructions that when executed by the computer, calculates a plurality of attribute measures for each financial strategy based on the financial projections for each respective financial strategy, the plurality of attribute measures corresponding to the plurality of attributes for the at least one financial goal;

instructions that when executed by the computer, calculates a utility score for each financial strategy based on the plurality of the attribute measures for each respective financial strategy and the investor financial preferences regarding the plurality of attributes for the at least one financial goal; and

instructions that when executed by the computer, selects at least one of the financial strategies from the plurality of financial strategies based on the utility scores for the plurality of financial strategies.

28. A computer-readable medium according to claim 25, wherein at least one financial strategy includes at least one of the following:

periodic withdrawal;

inflation adjustment;

minimal required distributions;

an ordered withdrawal strategy based on tax characteristics of the assets;

an ordered annuity purchase strategy based on tax characteristics of the assets;

periodic tax adjustment;

periodic shifting of asset allocations;

periodic rebalancing of assets to align with a current asset allocation;

re-investment of excess annuity payments;

reinvestment of excess minimal required distributions;

investor contributions;

asset management fees;

staggered investor account starts;

or MRD mortality rules.